Faculty Digital Archive

Archive@NYU >
Stern School of Business >
Accounting Working Papers >

Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/27577

Title: Who, if Anyone, Reacts to Accrual Information?
Authors: Battalio, Robert H.
Lerman, Alina
Livnat, Joshua
Mendenhall, Richard R.
Keywords: Anomalies
Market efficiency
Issue Date: 26-Jan-2007
Series/Report no.: Joshua Livnat-06
Abstract: We confirm and extend prior research that suggests accrual levels predict future returns, even after controlling for earnings surprise. We then document abnormal buying behavior around 10-K/Q filing dates that correlates with accrual level. Specifically, we extend Collins and Hribar (2000) by showing that the accrual anomaly persists for a sample of firms followed by analysts after controlling for analyst earnings forecast errors and using exact 10-K/Q filing dates. We then show that large traders, those who initiate trades of at least 5,000 shares, tend to trade in the correct direction in response to accrual information released in SEC filings after preliminary earnings. This tendency is limited, however, to cases where earnings conveyed favorable news initially. Investors who use accrual information apparently ignore stocks whose earnings convey unfavorable news or believe that accrual level is not informative for these firms. We also provide some evidence that the smallest traders react to accrual information, but in the wrong direction.
URI: http://hdl.handle.net/2451/27577
Appears in Collections:Accounting Working Papers

Files in This Item:

File Description SizeFormat
SSRN-id971007.pdf245.12 kBAdobe PDFView/Open

Items in Faculty Digital Archive are protected by copyright, with all rights reserved, unless otherwise indicated.


The contents of the FDA may be subject to copyright, be offered under a Creative Commons license, or be in the public domain.
Please check items for rights statements. For information about NYU’s copyright policy, see http://www.nyu.edu/footer/copyright-and-fair-use.html 
Valid XHTML 1.0 | CSS